Iraq Contract Fraud: Senators Call For Arrests, Recovery of Funds

This morning, the Senate Appropriations Committee, chaired by West Virginia Democrat Robert Byrd, heard testimony from Pentagon officials about their efforts to counter waste and fraud in federal contracts related to the ongoing wars in Iraq and Afghanistan. Byrd expressed outrage at the "appalling" mismanagement of funds. "Tens of billions of taxpayer dollars are lost, ... gone!" he cried, his outrage visibly building as he spoke. "How many minutes have passed since Jesus Christ was born? A billion! So, that's a lot of money! ... This is a failure of leadership. Individuals think they can get away with bilking—they're not just milking—bilking the U.S. and Iraqi governments... taking bribes, substituting inferior workmanship, or plain, old-fashioned stealing! Stealing!" he exclaimed.

Byrd cited a April 2007 GAO report (.pdf) that concluded, among other things, that the Pentagon "lacks clear and comprehensive guidance and leadership for managing and overseeing contractors" and "does not have a sufficient number of oversight personnel to ensure that contracts that are in place are carried out efficiently and according to contract requirements." To illustrate the scale of the waste and fraud, the report estimates that the Army Material Command loses about $43 million each year solely on the provision of free meals to contractors who also get per diem food allowances. Another GAO report (.pdf), released in May 2007, found that the amount of money obligated in DOD contracts for support services "exceeded the amount the department spent on supplies and equipment, including major weapons systems." [Emphasis added.] And with all this money being spent, often under cost-plus arrangements (the more a contractor spends on expenses, the more it collects in fees), the scale of abuse, fraud, and "plain, old-fashioned stealing" has been historic. We still do not know exactly how much money has been lost, and we may never know. But last year, the Defense Contract Audit Agency identified $4.9 billion wasted on overcharging or fraud, and an additional $5.1 billion spent without any documentation. Since only a sampling of contracts have yet been audited, the murky waters of corruption remain largely undisturbed.

This is something neither Byrd nor his Appropriations Committee colleague, Vermont Democrat Patrick Leahy, will abide. Leahy, in particular, told the witnesses that he's interested in "seeing some people go to jail" for the contract abuses in Iraq. Only then, he argued, is there likely to be a chilling effect on contractor fraud and corruption.

So far, though, given the scale of the problem, the penalties imposed for such abuses can be described as modest at best. The Pentagon's new acting inspector general, Gordon Heddell, took office just a few days ago. But in this morning's testimony, he was predictably sanguine about his department's prospects at reigning things in, proudly enumerating its past successes to the committee. Watching it, one got the feeling that his statistics-laden monotone was designed to put the senators to sleep so they wouldn't take notice of how laughably inadequate enforcement efforts have been. Remember now, the amount of taxpayer dollars lost or stolen is somewhere in the tens of billions. That being noted, Heddell told the committee that Defense Criminal Investigative Service has targeted 286 people in 124 separate investigations related to U.S. military operations in southwest Asia, and 32 cases have already reached the courts. So far, so good, right? Well, since the wars began only 22 people have been indicted on contract fraud, resulting in only 32 felony convictions. And wait, it gets better: those convictions have resulted in a combined total of just 54 years in prison, 44 years of probation, 10 debarments at four companies, and 28 suspensions. All told, the federal government has received $13.5 million in restitution, $1.76 million in forfeitures, and seized an additional $2.65 million in assets. Fines and penalties imposed amount to just shy of $350,000. So, for the tens of billions (with a "b") that have vanished into the sinkhole, the federal government has recovered a total of just $17 million and sentenced violators to minimal prison terms.

Still, Heddell told senators, his office "is on a firm footing to provide the necessary oversight." The numbers speak for themselves.